Foreign exchange intervention has long had a bad reputation; it
earned the beggar-thy-neighbour tag back in the 1930s. Now, even actions
that aren’t explicitly aimed at influencing the exchange rate,
such as the Federal Reserve’s quantitative easing, prompt accusations
that central banks are provoking a “currency war”.

A fascinating piece of research, published by the Bank for International Settlements on Tuesday, claims this bad rep is no longer fair. This from the paper:

[The phrase beggar-thy neighbour] condemns currency
depreciation in a world of insufficient effective demand as a case of
robbing the foreign Peter to pay the domestic Paul: cheaper exports of
the home country increase output and employment at the expense of sales
and jobs in competing countries.However, policy developments mean this analysis has become incomplete and misleading.

The paper argues that because central bank reserve managers now
invest largely in bonds rather than in gold – as was the case when the
beggar-thy-neighbour tag was coined, foreign exchange interventions end
up having largely the same impact as quantitative easing but on a global
scale. Interventions end up lowering interest rates internationally,
rather than just propping up demand in the country which is buying the
foreign exchange....MUCH MORE